
No, I don't think you're being cruel either - far safer that you can control where she is and what's she's doing than for her to disappear! If it makes you feel any better, I'm looking after a 1yr old chihuahua at the moment, and he never gets let off - the only exception to that is when my sister (his owner) walks him with me and my rott X bitch - he follows her around so we know he's okay.
I also don't think you're too late to teach him a good recall - both my dogs are past the 2yr old mark and I'm still working on their recall. I'm currently using the technique laid out in The Complete Idiot's Guide to Positive Dog Training by Pamela Dennison, and we're getting somewhere, it's well worth a read. And of course the folks here on champdogs are worth their weight in gold for good advice too :D seriously, the sooner you start, the better the chances of teaching her - younger dogs learn faster and more readily than older ones, generally speaking.